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Blackstone and GIC to Buy Rothesay Stake

U.S. private equity giant The Blackstone Group L.P. (BX - Free Report) , along with Singapore-based sovereign wealth fund, The Government of Singapore Investment Corporation Private Limited (GIC) is set to take over a large stake of The Goldman Sachs Group, Inc.'s (GS - Free Report) Rothesay Life Ltd. London-based Rothesay Life Ltd., is the European insurance unit of Goldman.

GIC as well as Blackstone is set to buy 30% stake each in Rothesay. Additionally, U.S. life assurer, Massachusetts Mutual, is set to acquire 6% stake. This will leave Goldman with roughly one-third holdings in the total business.

Under pressure from new regulatory requirements, Goldman had intended to shed most of its stake in Rothesay over the span of one year in deals worth roughly $1.40 billion. Under Basel rules, banks are required to maintain a capital cushion to absorb possible losses on assets. The Basel III regulations have made pension businesses less attractive for banks, and have forced banks such as Goldman to vend their businesses to lesser-regulated private equity firms like Blackstone.

Goldman’s Tier 1 common equity as of Jun 30, 2013, was 9.3% of the bank’s risk-weighted assets under Basel III rules. However, the N.Y.-based banking giant has set a goal of about 9.5% or 100 basis points higher than the regulatory limit.

It appears that Goldman has been selling its stake in businesses to reduce its non-core business exposure. Regulatory pressure to strengthen its capital ratios is another factor that caused the company to take such measures.

Weak capital levels and the requirement to conform to more stringent capital rules are challenges in the present unstable economy. However, the new capital rules will benefit the financial system in the long run. They will prevent bank failures and involve less of taxpayers’ money for the bailout of troubled financial institutions.

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